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Nevada Confirms Its Restrictive Covenant Law, But Rejects Blue Penciling

In the first decision to reach the Nevada Supreme Court on whether state district courts may modify or “blue pencil” non-competition agreements, the high court has concluded that doing so would violate Nevada law. Golden Road Motor Inn Inc. d/b/a Atlantis Casino Resort Spa v. Islam, 132 Nev. Adv. Op. 49 (July 21, 2016). The 4-3 decision signals a clear change in direction that affects the enforceability of non-competition agreements in Nevada.

The Court explained that under Nevada law, an overly broad term prohibiting an employee from “employment, affiliation, or service” with a competitor, which “extends beyond what is necessary” to protect the former employer’s interests, is unreasonable and “renders the noncompete agreement wholly unenforceable.”

Distinguishing this case from prior published decisions, the Court reasoned that exercising “judicial restraint when confronted with the urge to pick up the pencil is sound public policy … as our use of the pencil should not lead us to the place of drafting.” The Court explained its role as interpreting contracts, not writing them, and that altering a contract, even minimally, would “conflict[] with the impartiality that is required of the bench….”

Further, the Court stated that “[a] strict test for reasonableness is applied to restrictive covenants in employment cases because the economic hardship imposed on employees is given considerable weight.” Employers clearly hold a superior bargaining position when such contracts are presented to employees and, in the context of a restraint of trade, the Court said that “a good faith presumption benefiting the employer is unwarranted.”

This clear change in direction affects the enforceability of non-competition agreements in Nevada. Employers must ensure that non-competition provisions are drafted clearly and are reasonable in all respects. Employers must be mindful of whether the provisions “extends beyond what is necessary” to protect their interests. Questions to ask include:

  • Is the period of non-competition longer than necessary?

  • Is the geographic scope (the territory in which competition is prohibited) larger than needed when compared to the work the former employee performed and information to which the employee was exposed?

  • Does the non-competition clause prevent the former employee from being employed in the same industry generally, or is the restriction limited to the same or substantially similar type of work the former employee performed while employed with the former employer?

  • Does the language in the non-competition provision (or the contract in which it appears) provide factual support upon which a court may rely to assess the reasonableness of the time, territory, and job restrictions?

Similar courts in many other states, the Nevada Supreme Court has stated that non-competition agreements generally are disfavored and will not be enforced unless narrowly drafted. By following an “all or nothing” approach to overbroad agreements, Nevada is in the minority when compared to courts that take either the strict blue pencil approach (see, e.g., our article, North Carolina Supreme Court Reiterates Limited Blue Pencil Approach to Overbroad Non-Competes) or the reasonable reformation approach. Accordingly, careful drafting is required.

Employers, particularly those seeking to use non-compete agreements in a multistate environment, should take the time to review and revise form and contract-specific non-competition agreements to ensure the agreements are enforceable.

Jackson Lewis P.C. © 2020National Law Review, Volume VI, Number 208

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About this Author

Elayna Youchah, Jackson Lewis Law Firm, civil rights law attorney
Principal

Elayna J. Youchah is a Principal in the Las Vegas, Nevada, office of Jackson Lewis P.C. She works on matters arising under Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Family and Medical Leave Act, the Fair Labor Standards Act including, but not limited to, wage and hour class actions, and state law wrongful termination matters.

Ms. Youchah has broad experience dealing with the Equal Employment Opportunity Commission and the U.S. Department of Labor,...

702-921-2474
Paul Trimmer, Labor and employment law attorney, Jackson Lewis law firm, shareholder
Principal

Paul Trimmer is a Principal in the Las Vegas, Nevada, office of Jackson Lewis P.C. Mr. Trimmer advises employers across a wide spectrum of industries including hospitality and gaming, entertainment and nightlife, transportation, health care, mining, business process outsourcing and software development, restaurants and food service, construction, food manufacturing, and pharmaceuticals.

Mr. Trimmer's practice is balanced between traditional labor matters, including collective bargaining negotiations, arbitrations, strikes, lockouts, representation cases, unfair labor practice litigation and other disputes before the National Labor Relations Board, and federal and state court employment litigation such as wage and hour class actions, statutory discrimination claims, prevailing wage disputes, restrictive covenant disputes, and Taft-Hartley trust fund lawsuits. He has successfully argued several cases before the Ninth Circuit Court of Appeals.

702-921-2460
Deverie J. Christensen, Office Managing Principal, Jackson Lewis, discrimination and harassment lawyer
Office Managing Principal

Deverie J. Christensen is Office Managing Principal of the Las Vegas, Nevada, office of Jackson Lewis P.C. She practices in all areas of employment law, and has significant experience in the areas of employment discrimination and harassment, wage and hour law, and disability and leave laws.

Ms. Christensen represents public and private employers in a wide range of employment actions in administrative forums and state and federal courts, including discrimination, harassment, wrongful termination, breach of contract, and wage...

702-921-2466
Lisa A. McClane, Employment Litigator, Jackson Lewis Law firm
Of Counsel

Lisa A. McClane is Of Counsel in the Las Vegas, Nevada, office of Jackson Lewis P.C. Her practice covers the spectrum of employment litigation, including both state and federal claims.

Ms. McClane has experience advocating for corporate clients and public employers in state and federal court proceedings, arbitrations, mediations and before governmental agencies including the EEOC, NERC, DETR and DOL. She has handled cases involving claims of race, age, disability, religious and sex discrimination, as well as sexual harassment, retaliation, wage...

702-921-2460